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Static Features of Keynesian General Theory of Employment

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Static Features of Keynesian General Theory of Employment!

Keynes’ theory is essentially static and short run in nature. A number of factors are assumed as given, for example, quantity of available skilled labour, equipment, techniques and degree of competition. But, during the process of development, none of these factors can be assumed to remain constant.

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The major goal of economic policy in a backward area is to induce changes in the quantity and quality of equipment as well as bring about radical changes in the social structure. To solve the problem of chronic unemployment, a dynamic and long- run theory is essential.

Capital formation alone cannot solve the problem of chronic unemployment in underdeveloped countries. Capital formation requires a cut in consumption and an increase in savings. The problem in a poor country is just the opposite of what it is in rich countries.

The adoption of the Keynesian presumption of more spending and less savings would prove ruinous to poor nations. The policy of injecting more money through monetary and fiscal expansion would, instead of solving unemployment, generate inflationary pressures in the economy.

Keynesian theory deals merely with conditions where there is surplus resources and equipment which can be readily used and where there is a considerable amount of labour willing to accept employment.

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Keynesian analysis and policy conclusions are valid only if we accept that there is an excess supply of complementary resources in the community or there is excess capacity of equipment to produce these resources. This is normally a characteristic feature of an economy going through a depression. In fact, a major portion of the general theory of employment deals with depression economics only.

The classical theory may, therefore, be more appropriate in explaining how an underdeveloped economy can attain a high volume of employment and income. It views an economic problem as one mainly of allocation of given resources.

The level of employment does not merely depend upon the volume of available labour; it also depends upon the supply of capital equipment, raw materials and other productive resources, technical skill and improved techniques of production all of which an underdeveloped economy lacks.

The supply of these basic requirements has to be increased in order to achieve an increase in the level of income and employment. This is a long-term phenomenon which involves a period of waiting.

According to Dr. Brahmananda, the general theory refers only to lack of effective demand as one of the bottlenecks that prevents the attainment of the high level of employment. A comprehensive theory of employment should explain the causes and remedies for the lack of a high level of employment in both advanced and backward countries.

The effective demand in underdeveloped countries can increase only if income increases. For an increase in effective demand, the vicious circle of poverty has to be broken by synchronised application of capital over the wide range of industries.

A large amount of capital formation is needed to increase the supply of capital in the economy; but the rate of capital formation is conditioned by the rate of savings in the economy. A backward economy needs more savings rather than spending. Evidently, the Keynesian theory, being a theory of spending, is out of place in the context of a backward economy.